Pay Transparency: Embracing the Labor Market Shift as an Advantage, Not an Impediment

In the midst of today’s volatile economic environment – one that seems relentlessly nebulous and at times even contradictory – it feels like there are few things that we can count on for sure. There is, however, one area in which clarity has sharpened: pay transparency. Whether you are an employer or an employee, this is likely a term most of us have heard at least sporadically in the last couple months, on the heels of multiple states passing legislation aimed at increasing pay transparency requirements.

Traditionally, some employers have viewed salary visibility as a detriment. In this article, we discuss the trend, its effects on companies and workers alike, and the reasons why you should embrace pay transparency as an advantage – not an impediment.

What is pay transparency?

Pay transparency, on its most basic level, places the onus on companies to inform prospective employees of their expected pay. Historically, this has not been a widespread phenomenon, with salary negotiations being viewed as a customary and expected aspect of the hiring process. To this day, many workers apply to positions with little knowledge of the compensation they might earn, sometimes compelled to go through the entire hiring process before receiving a potentially unsatisfactory offer. They must then decide whether to accept the lower-than-expected pay; negotiate for a higher salary; or reject the offer outright. Ultimately – and particularly in the third case – this can lead to a loss of efficiency for both the employee and the employer, not to mention possible financial loss for the former.

Why is pay transparency an important topic in today’s workplace?

Pay transparency has become a hot topic in recent years. Several states across the country have passed recent legislation requiring employers to post salaries or generally be more transparent about the pay they are offering. On January 1st of this year, California’s Senate Bill 1162 went into effect, mandating that companies with 15 or more workers provide a pay range on job postings. New York City, Washington, and Colorado have all passed similar measures.

How does pay transparency affect employees?

Pay transparency’s effect on employees is quite clear. Put simply, pay transparency allows job-seeking employees to make more informed choices about the positions they apply for. They will know before they even start to fill out an application whether the offered pay matches their expectations, saving them time and effort to target jobs that are truly feasible and desirable. It also shields them from the aforementioned situation in which they are forced to either fight for fair pay or settle for less.

How does pay transparency affect employers?

Pay transparency’s effect on employers is a bit more difficult to grasp. On a surface level, it seems that employers should be loath to pay transparency. In the traditional system, employees have essentially been expected to either accept a salary at face value – which may be significantly lower than they had anticipated – or prove to the hiring manager that they are worth more by pursuing pay negotiations. Employees are also often asked in interviews what kind of pay they are looking for, leaving it to the worker to determine what “fair” might be rather than holding the employer responsible. Including a salary range in a job posting is not just an additional step for the company creating it, but holds them accountable to that information as well, giving them less power in ensuing pay negotiations.

However, in reality, employers have something – even many things – to gain from increased pay transparency. One is pure efficiency. Though employers may lose some time making a decision about how much they can and want to offer, they will gain the assurance that every applicant will, in theory, be reasonably happy with the amount, decreasing the risk of a salary-based rejection.

Additionally, pay transparency can be an extremely advantageous tool for companies that want to prioritize diversity, equity, and inclusion in their workplace. According to a recent AP News article, pay transparency particularly benefits women and racial minorities, who typically see less success in pay negotiations than their white male counterparts. The positive impacts of DE&I are well-documented and numerous, ranging from superior financial performance to higher employee retention rates. The bottom line is clear: diversity, equity, and inclusion are good for people, good for businesses, and good for society – and pay transparency is a tool that can be tapped to achieve these.

As an employer, how do I participate in pay transparency?

Ultimately, pay transparency is a means to pay equity – something we should all be aiming for as members of the workforce. In order to achieve this, employers must start with a clear sense of their organization’s compensation philosophy. In this respect, workers’ salary history should have zero impact on what they end up earning in their new role – instead, the hiring company, bolstered by its unique compensation philosophy, should be able to designate a fair value to the role.

For instance, when I worked for Golden Gate Doughnuts, a Krispy Kreme franchisee in the 1980s, Chief Glazing Officer Brad Bruckman made the decision to pay individual retail store General Managers at the 90th percentile in terms of compensation. To put that in perspective, while other quick service and food service establishments may have been paying their General Managers an annual wage somewhere in the mid-$60k range, the General Managers working for Golden Gate Doughnuts would be paid more than $80k. Why was this decision made? Bruckman had determined that the loss of a General Manager at one of the retail stores – all of which operated 24 hours a day – was extremely detrimental to production. During the peak of Krispy Kreme’s expansion, it was essential to have highly skilled, dedicated General Managers, as well as highly skilled Assistant Managers, to promote team stability and keep production at optimal levels.

Thus, Golden Gates Doughnuts’ compensation philosophy was to pay at the higher end of the market range in order to safeguard production and expansion objectives. Similarly, every organization has end goals that they would like to meet, and compensation is a key component to achieving those. When employers are transparent about pay, they are, in a way, communicating those goals to prospective employees. This not only allows companies to tap the talent best suited to their needs, but, as mentioned, helps them play their part in closing the pay gap.

What does the future of pay transparency look like?

Pay transparency is likely to only accelerate in the coming years. An increasing number of companies, even in regions where not mandated by law, are posting salary ranges in order to stay competitive in the marketplace. Because of this, it is not difficult to imagine a future wherein pay transparency is not just common, but the status quo.

How can Stone Soup assist you in navigating this new era of pay transparency?

  • Conduct pay audits and benchmark current employees’ compensation.
  • Help write and review job descriptions following an analysis of the role.
  • Look at total compensation (not just base) to identify all the additional forms of compensation employees may earn.
  • Help you define your compensation philosophy and determine how that fits into your business and organizational strategy.